Refinancing Introduction

A great way to save, add stability to your household budget and more.

Across the nation each year, thousands of homeowners refinance their mortgage. Know why? With a mortgage refinance you can save more over the life of the loan, bring stability to a changing mortgage payment—and ultimately your budget. You can even refinance as a means of debt consolidation.

  • Save more with a mortgage refinance—reduce your term or lower your monthly payment
  • Refinance to a fixed-rate mortgage and enjoy stabilityHomestead, thinking of refinancing
  • Debt consolidation—another reason to refinance

What does it mean to “refinance” your mortgage?

When you refinance your mortgage, you’re actually replacing it with a brand new loan. In doing this, expect to go through a mortgage application process similar to what you experienced with your original mortgage. Refinancing is often a sound financial choice that can allow you to meet a variety of needs:

  • Reduce your monthly payments by taking advantage of lower interest rates or extending the repayment period.
  • Reduce your interest rate risk by switching from an adjustable-rate to a fixed-rate loan or from a balloon mortgage to a fixed-rate loan.
  • Reduce your interest cost over the life of your mortgage by taking advantage of lower rates or shortening the term of your loan.
  • Pay off your mortgage faster (accelerating the build-up of equity) by shortening the term of your loan.
  • Provide funds for major expenses or to consolidate debts.

How do I calculate the value of my property?

Since a mortgage is a loan secured by a piece of real property, a crucial factor is in the correct value of the property in question. Property value can be determined in a number of ways:

  • The market value of the property – that is, what a buyer will pay for it and what other comparable properties (comps) in the neighborhood have recently sold for.
  • The appraised value of the property – that is, what a trained and licensed professional deems the property to be worth based on an inspection, comps, and a thorough analysis of the property and its neighborhood.
  • Additionally, the appraiser estimates the replacement value of the property – that is, the cost to build a house of similar size and construction on a vacant lot. The appraiser reduces this cost by an age factor to take into account deterioration and depreciation.

What is the difference between a rate-term refinance vs. Cash-out refinance?

Refinance

A rate-term refinance has a loan amount that is just enough to repay the balance of the existing mortgage. The purpose of the loan could be either to reduce your interest rate, adjust your loan term, or both. A cash-out refinance, on the other hand, has a loan amount that exceeds the current mortgage balance. The higher loan amount converts some of you home equity into cash proceeds, which you receive at loan closing.

What is a home equity loan or line of credit (heloc)?

A loan for which you can either receive a large sum of money or have an open line of credit that can be drawn as it is needed, with, typically, low interest rates. Use the equity in your home to make improvements to your home, pay college tuition, unexpected expenses or simply free up some extra cash. Home equity lines of credit (helocs) offer numerous benefits and flexibility to homeowners:

  • The interest payments can be tax deductible (please consult your tax advisor).
  • They usually have low interest and minimum payments.
  • Homeowners do not need mortgage insurance with helocs.

The home equity line of credit is used as you need it and can be paid off at anytime. You can draw on your line of credit from time to time, up to the total amount available. Your monthly payment is based on the amount of your line of credit you have used. You enjoy a lot of flexibility and control over your money